If you’re like most people, you are panicking with the current market turmoil. The Dow Jones Industrial Average is on a downward trajectory having lost almost 300 points to close the week out.
While your first reaction might be to sell, a smart investor knows that this is exactly the time to sit tight. Digging yourself deeper into a financial crisis only serves to make you lose your money even faster. Do not panic.
Some ways to overcome a financial crisis
If your financial crisis is due to overspending, the solution would be the same, just on a much smaller scale.
Admission of guilt
This is probably the hardest part for most normal people. Having to acknowledge that you and you alone are responsible for your downfall is a hard one. It’s easy to get sucked into the fact that you are a genius when it comes to picking the right stocks and bonds.
What we forget is that everyone is a genius when we are in a Bull market. The market has been bullish for the past nine years and a half, making it the longest bull market run in history.
What this has meant is that people have made a lot of money the past few years, and all the major companies have had great years with very good profits. These profits trickle down to the people in the form of dividends, and stock splits.
A Bear market on the other hand is the exact opposite. Company shares fall, and dividends might be reduced. More importantly, the stock prices fall. This can lead to loss of invested money.
Once you admit your guilt, or greed as it were, you can set about correcting the mishaps.
Checkup on your stock portfolio
The next step is to do a financial checkup of your assets. If this is something that is over your capability, it is essential that you get help. A financial advisor might come in handy at this point. You need to make sure that your money is invested in the right places.
For instance, if you are almost at retirement age, this is not the time to invest in stocks. Rather, you need to look at mutual funds for instance.
While mutual funds may not be as alluring as individual stocks, they are solid investments with more stable returns since your money is spread out over different industries.
The end result is that when the markets shift, your loss is not as high because of the buffer, courtesy of other industries moving higher.
Rebalance your portfolio
There are many reasons why you might need to rebalance your portfolio in addition to the one stated above.
Are you having a baby? Do you need to buy a home in the near future? All these might mean that you need to access your money sooner than later. An advisor can steer you towards the best plan for you and your family.
Also, an emergency fund can help you with those unforeseen expenses you encounter. A “rainy day” fund for unexpected payments can provide you with the money you need without making a hole in your pocket.
Address the problem: Budget
Once you have identified how you got yourself into a financial mess, find ways to fix the problems. Without addressing the issues, you will continue to dig yourself into a bigger hole. This is where having a budget comes in.
You can make yourself a spreadsheet and write everything down. All your outgoing expenses should be recorded. Once you have a handle on where the money drain is coming from, you can work on eliminating the fat.
If for instance, you’re one to get all the latest toys and gadgets, and you find yourself replacing your iPhone as an example as soon as a new upgrade comes out, consider taking a breather and skipping future models until your current one lasts for as long as it can. Budgeting is not fun, but it is necessary.
Pay down your debt the right way
Gather all your current outstanding bills and make a plan. Prioritize. Make sure to pay off your debts the cheapest way. This will save you money, which in turn can help pay off the other debts faster.
Life is stressful enough, and when you have hanging over your head, it makes life even more stressful.
Prevention
Once you have made headway with your finances, it is important not to fall into the same trap again. Your objective should be to prevent that. You must learn to control your spending.
Life is geared towards making you spend money, and especially on trivial things that do not enhance your life in any way.
If you’re striving for financial independence, be it at an early age, or a traditional retirement, it’s never too early to start planning.
Getting rid of debt is something that everyone should strive for. You can save more for the future. Budgeting and living within your means might also become a life lesson, one that will serve you for the rest of your life when you learn to separate your wants from your needs.
Emerging from a financial crisis is doable when you focus and are committed to making better financial decisions.
